Aurelia Butler

Chinese deal activity in the US has fallen to its lowest level in almost two decades, in a sign of geopolitical tensions between the two countries weighing on cross-border financial activity.US merger and acquisition investment from China has totalled just $221mn so far this year, representing the slowest pace of investment since 2006, according to data from Dealogic. The total at this point last year was $3.4bn.The figure contrasts with growing investment into mainland China and highlights the impact of geopolitics on a previously booming cross-border financial sector that for years provided a bridge for Chinese businesses into lucrative western markets.Besides the US, Dealogic data showed just $189mn of Chinese deals in Germany so far this year, the lowest amount in more than a decade, while activity in the UK and Australia has totalled $503mn and $228mn so far. There are no recorded deal figures for Canada.“This year, at least for the first half, there’s not [been] that much activity,” said Crystal Zhang, a Shanghai-based partner at financial firm Arc Group.“There are things that are being worked on, but clearly volumes have fallen a lot, there is more regulatory intervention,” said one banker at a leading international bank in Asia, who spoke on the condition of anonymity and suggested future activity would be “outside of the national security box”.He pointed to the example of the critical minerals and metals industries, which became subject to new restrictions by China last month. “There are a lot of Chinese companies who would very much like to pursue M&A [in critical minerals] in Canada, Australia or North America. That seems harder in this kind of environment.”Relations between the US and China worsened this year after the US shot down a suspected Chinese spy balloon. The launch of a congressional committee on China has added to the scrutiny of business relations, while the US has also imposed restrictions on Beijing’s access to semiconductor technology.Chinese outbound M&A has shown signs of growth in other parts of the world, such as in Peru, where Italian utility company Enel this year sold assets to China’s Southern Power Grid International for $2.9bn in the biggest outbound deal of the year. The next three largest deals were in Singapore.But the total of just under $12.2bn invested so far this year contrasts with the tens of billions of dollars invested annually for the decade prior to the coronavirus pandemic. In 2016, China’s full-year outbound M&A peaked at $212bn, while in 2019 it was $54bn.

The chill in outbound activity contrasts with less volatile inbound M&A deals on the mainland, which have picked up in recent months and are so far running at their fastest pace since 2015, at $27bn this year.One source of deals has been multinationals seeking to restructure or carve out their mainland operations amid the worsening climate, industry participants said.Alongside a tougher climate for M&A, foreign investment banks have also struggled to remain active in China’s vast initial public offering market, which is now completely dominated by domestic players.As of June, foreign banks had been involved in just 1 per cent of deals this year. More

Wealth managers forecast that UK retail savers will keep pulling funds out of investment funds this year, as householders struggle with inflation and rising mortgage costs.Data from the Investment Association, a trade body, showed that in June retail investors pulled some £986mn from equity and fixed income funds. This represented the first net outflow by retail investors since December last year. As rising rates drove growing interest in fixed income, investors focused strongly on UK government bonds with overall net flows into gilts funds in June of £504mn, compared with a net inflow of just £126mn across all bond funds (including gilts). “We have had a few clients take money out of their portfolios to pay off mortgages,” said Cuthbert Hopkinson, a portfolio manager at Waverton Investment Management. He said people were concerned about rising costs, but higher rates were starting to push down inflation.High rates and the risk of a slowdown in the UK economy this year have weighed on retail investors as they deal with the trickiest market conditions in more than a decade.The Bank of England’s monetary policy committee on Thursday raised interest rates by 0.25 percentage points to 5.25 per cent in a sign central bankers remained wary of stubbornly high inflation, despite price increases falling more than expected to 7.9 per cent in June. However, rates nearing expected peaks will offer little reprieve to mortgage holders scheduled to renew at levels far higher than experienced in the past decade. The average five-year fixed mortgage reached 6.37 per cent ahead of Thursday’s rate hike, according to date provider Moneyfacts. “It’s about making a logical decision, if you’re paying 6 or 7 per cent on a mortgage, it’s better to pay that off because you can’t get that return on an investment at the moment,” said Rachel Winter, a partner at wealth manager Killik & Co. Hopkinson said that deposit savings rates were also a draw for investors, as well as short-term gilts and corporate bonds. But he argued equities remained a more effective long-term hedge against inflation.Investors also used a rally in global share prices to bank gains in June, according to Edward Glyn, head of global markets at Calastone. Calastone’s data, which also includes small UK institutional investors, showed £588mn in outflows from North American funds as savers took profits — the S&P 500 was up 20 per cent in June on recent market lows seen in October. Glyn added: “If and when inflation returns to target, locking in at today’s high bond yields for the medium to long term will offer significant benefits to those investors who have committed capital to fixed income funds.” More

SINGAPORE (Reuters) -Singapore’s second-biggest lender Oversea-Chinese Banking Corp (OCBC) on Friday posted a 34% rise in second-quarter net profit in line with estimates, while flagging it expected slowing global economic growth heading into 2024.The quarterly results from OCBC, also Southeast Asia’s second largest lender by assets, rounded up a strong earnings season by Singapore banks as DBS Group (OTC:DBSDY) and United Overseas Bank (OTC:UOVEY) also delivered double-digit profit growth.Besides higher interest rates, Singapore lenders have also benefited from strong inflows from wealthy customers amid global uncertainty, including U.S.-China geopolitical tensions, because of the city-state’s status as a financial safe-haven.”With the potential for at least one more Fed rate hike, margins should get some more support going in to the rest of 2023,” said Thilan Wickramasinghe, head of equity research at Maybank Securities. “However, beyond this, we see risks.” Higher interest rates and slower economic growth could raise asset-quality risks for businesses and individual customers, he said, adding weak loan demand could negatively impact net interest income growth momentum once margin expansion peaks. OCBC said April-June net profit climbed to S$1.71 billion ($1.28 billion) from S$1.28 billion a year earlier mainly driven by better income growth and partly offset by higher allowances for non-impaired assets. The figure compared with a mean estimate of a S$1.76 billion profit from four analysts polled by Refinitiv. OCBC, which counts Singapore, greater China and Malaysia among its key markets, said it was watchful of the effects of persistent inflationary pressures and higher interest rates, according to presentation slides accompanying its results.The lender projected its full-year net interest margin (NIM), a key profitability gauge, to be above 2.2%, return on equity (ROE) in the range of 14% and low-to-mid single-digit loan growth.OCBC’s NIM increased to 2.26% during the second quarter from 1.71% a year earlier. ROE rose to 13.5% in the quarter from 10.3% in the same period of 2022.It declared an interim dividend of 40 Singapore cents per share, up 43% from a year ago. ($1 = 1.3410 Singapore dollars) More

WASHINGTON (Reuters) – The chair of a U.S. House committee on Thursday urged President Joe Biden to adopt expansive restrictions on outbound U.S. investment in China especially in key sectors likely to harm U.S. national security.Representative Mike Gallagher, a Republican who heads the select committee on China, wants the Biden administration to “include both private and public market investments flowing to China in new restrictions.”The letter is the latest push by lawmakers in both parties for Biden to finalize tough restrictions on U.S. investments in China. Biden is likely to adopt new outbound investment restrictions on China in the coming weeks, sources have told Reuters.For more than two years, U.S. lawmakers have been pushing the Biden administration to boost oversight of investments by U.S. companies and individuals in China.Gallagher said U.S. investment in China “poses a significant national security risk, exposes Americans to material and systemic financial risks, and makes them complicit – often unwittingly – in human rights abuses.”Reuters reported in July the Biden administration was finalizing an executive order that would also restrict certain investments in sectors including advanced semiconductors, quantum computing and artificial intelligence.Gallagher said investments in key sectors relevant to national security and central to China’a technological rise should be restricted and ensure U.S. capital “does not support the ongoing People’s Liberation Army (PLA) buildup, facilitate the CCP’s human rights abuses or techno-totalitarian surveillance system, or deepen our dependency on (China) in critical supply chains.” The White House declined to comment. Chinese Embassy in Washington spokesperson Liu Pengyu said the United States “habitually politicizes technology and trade issues and uses them as a tool and weapon in the name of national security … We will closely follow the developments and firmly safeguard our rights and interests.”Gallagher wants the Biden order to protect shareholder rights by forcing Chinese companies to meet same due diligence standards as U.S. companies and “ensure these investment restrictions are predictable and provide certainty to investors. Avoid creating an onerous, case-by-case screening process.”He also wants Biden to “consult with allies and partners before implementing new restrictions and urge them to adopt parallel restrictions on investing in China.”Last month, the Senate overwhelmingly approved legislation to requires notification of some outbound investments in China.Commerce Secretary Gina Raimondo has said any restrictions on U.S. investors should not “be overly broad.”Gallagher said on Tuesday the committee is investigating BlackRock (NYSE:BLK) and MSCI for facilitating the flow of American capital into companies the U.S. government has found guilty of fueling China’s military advancement or human rights abuses. More

Walgreens said in a statement it would use the proceeds to pay down debt and for general corporate purposes. The latest share sale includes $250 million that drug distributor AmerisourceBergen will buy back from Walgreens under its share repurchase program, Walgreens added.The company has been reducing its stake in AmerisourceBergen over time. Walgreens sold some AmerisourceBergen shares for $694 million in May.After the latest share sell, Walgreens will remain AmerisourceBergen’s largest shareholder. More

Over the past seven months, the bolivar has depreciated by a third compared with the U.S. dollar, according to analysts consulted by Reuters.President Nicolas Maduro has presided over a prolonged economic meltdown in the oil-rich nation, which was once South America’s wealthiest. The annual rise in consumer prices for June topped 404%, according to central bank data, as analysts predict that inflation will continue to accelerate this year.Maduro’s ruling socialists have sought to control creeping prices by cutting public spending, imposing credit limits and tax hikes since the end of 2021. They have also tried to make foreign currency more readily available to local banks, but the strategies have not tamed the country’s galloping inflation rate.Since early this year, the central bank has offered local banks about $1 billion, according to local firm Sintesis Financieras. Meanwhile, U.S.-based oil major Chevron (NYSE:CVX), which operates in the country, has posted foreign currency sales of around $400 million from February to July.While salaries for public workers remain stagnant, the government does pay bonuses that translate to increased spending.Maduro has insisted on a fixed exchange rate to anchor his economic strategy, instead of allowing the rate to float freely. The policy spurs a scrabble for more hard currency. More

Rare earths are a grouping of 17 metals used to make magnets found in motors that turn electricity into motion. China is the world’s largest producer and consumer of rare earths and rare earth magnets.The company, which operates California’s Mountain Pass mine, posted second-quarter net income of $7.4 million, or 4 cents per share, compared to $73.3 million, or 38 cents per share, in the year-ago quarter.Excluding one-time items, the company earned 9 cents per share. By that measure, analysts expected earnings of 6 cents per share, according to IBES data from Refinitiv.For the past three years, MP has processed rock that it extracts from its California mine into rare earths concentrate. The company produced 10,863 tonnes of that concentrate during the quarter, about 5% higher than the year-ago period.That concentrate is sent to Chinese partners where it is further processed into neodymium and other rare earth metals used to make magnets.MP said that “in recent weeks” it had started refining small amounts of its own rare earths in California, a goal the company had been pursuing for more than three years. The company did not provide volumes and said it was working to complete commissioning of the refining equipment. Executives said they were comfortable with the chemistry that underpins the refining, but that more work remained to calibrate the physical processing equipment. They said they could not yet forecast 2024 production or revenue from sales of rare earths refined by the California equipment. “There’s a little bit more work to do before we can say that all the bugs are worked out or that we’re 100% confident,” Michael Rosenthal, MP’s chief operating officer, told investors on a conference call. “But the general processes are working. We feel comfortable that what we’ve designed is able to perform to the design basis of our circuits and that with time, we’ll get to greater throughput, reliability and performance yield.”Shares of the Las Vegas-based company rose slightly to $22.25 in after-hours trading. More